Conundrum: how to get procrastinators to save

Enter automatic enrollment. Under this "auto pilot" approach, employees are automatically placed in 401(k) plans unless they say otherwise. Automatic enrollment was once a legally dicey proposition, but new regulations in the late 1990s gave companies more leeway. Deloitte Consulting reported last year that 15 percent of companies surveyed offered automatic enrollment, and another 13 percent were considering it.

Now, several bills in Congress would make the law even more friendly to auto-pilot 401(k)s, according to a report by the Association of Senior Human Resources Executives.

But automatic enrollment raises new questions. If the company handles setting up the 401(k) for you, where should it put your money? In its own stock, a favorite 401(k) investment option? In mutual funds? Or in the traditional default - safe and boring money-market funds?

Companies can get themselves into a legal pickle if they offer risky default investments, says Terrance Odean, professor of finance at the University of California at Berkeley. But politicians could change that. "The government could say these are the approved default options, and companies cannot be sued for having encouraged their employees to take undue risk," he says.

Default or no default, 401(k) investment options - sometimes running into the dozens - can overwhelm workers, especially those without any financial education. New "Roth" 401(k)s, which debut next year, will make things even more complicated by offering workers a new alternative - a way to avoid a big tax hit at retirement.

To make investing less vexing, fund companies offer plenty of "lifestyle" funds, which automatically adjust themselves as workers grow older. Some companies also offer "managed" 401(k) accounts, which are designed for individual investors by an outside financial manager.

Mr. Utkus of Vanguard, which offers managed accounts, says they're best for older workers who have significant 401(k) accounts but are mystified by the wide world of investment options. "The whole idea," he says, "is taking money management out of your hands."

About a third of workers don't contribute to 401(k) plans. For those who want to change their ways, Scott Revare, founder of Smart401k.com, suggests taking these steps:

• Max out your employer match. The average match is 50 cents for every dollar an employee contributes, up to 6 percent of your salary. For an employee making $50,000 a year, that's $1,500 in "free money toward your retirement," says Mr. Revare.

• If you can't afford to contribute, set up an automatic savings increase plan that adds 1 percent of your salary to your 401(k) each year until reaching the max.

• Reevaluate your 401(k) holdings two to four times a year, or every time a major life event occurs, such as the birth of a child, a child entering college, or a career change.

• Minimize allocations in company stock. One-third of all companies use their own stock as part of the matching contribution feature, according to a recent Hewitt Associates study. "Keep no more than 5 percent in your company stock - since 100 percent of your earnings are tied to the company's welfare already," says Revare.

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